Strategic Trade Controls Circular No. 12/04

Import and Export of Encryption Products

This circular intends to remind traders of the licensing requirement for the import and export of encryption products. Circular No. 10/01 dated 23 October 2001 of the same subject is hereby superceded.

The Legal Basis

The legal basis for imposing licensing control over strategic commodities in Hong Kong is the Import and Export (Strategic Commodities) Regulations (to be referred as "the Regulations" hereafter) made under the Import and Export Ordinance, Chapter 60, Laws of Hong Kong. Articles contained in the Schedules to the Regulations are regarded as strategic commodities, the import and export of which must be covered by valid licences issued by the Director-General of Trade and Industry. The Regulations contain four Schedules. Schedule 1 is the full list of strategic commodities subject to import and export licensing control. Schedule 2 contains products which, in addition to being subject to import and export control, are controlled even if they are in transit through Hong Kong. Schedules 3 and 4 are items and activities subject to end-use control (also read paragraph 19 below).

Control on Encryption Products

Encryption products are controlled under the Wassenaar Arrangement (WA), an international control regime overseeing the controls over the transfer of both munitions list items and dual-use goods and technology. Encryption products fall under Category 5, Part 2 - Information Security of the Dual-use Goods List of the WA. In implementing licensing control on strategic commodities, Hong Kong follows closely the controls adopted by the international control regimes. According to the current control maintained by the WA, encryption products with a symmetric key length above 56-bits are subject to control. Accordingly, import and export of such encryption items are subject to licensing control under the Import and Export (Strategic Commodities) Regulations of Hong Kong. For traders' easy reference, the broad categorisation of encryption hardware, software and technology subject to control in Schedules 1 and 2 to the Regulations are set out below:

Category No.

Description

5A002

Systems, Equipment and Component

5B002

Test, Inspection and Production Equipment

5D002

Software

5E002

Technology

Note : The WA has not imposed specific control on Category 5C002 - Materials.

Traders should note in particular that encryption products also fall under Schedule 2 to the Regulations. This means that import and export licences are required even if these products are merely in transit through Hong Kong (i.e. the goods remain at all times on the vessel or aircraft in or on which they are brought into Hong Kong).

Exemptions of Control

While the Regulations impose control over encryption products with a symmetric key length above 56-bits, exemptions are granted for products, of whatever key length provided that they are under either one of the following scenarios:

accompanying the user, for the user's personal use; or

meeting all of the following conditions :

Generally available to the public by being sold, without restriction, from stock at retail selling points by means of any of the following :

Over-the-counter transactions;

Mail order transaction;

Electronic transactions; or

Telephone call transactions;

The cryptographic functionality cannot easily be changed by the user;

Designed for installation by the user without further substantial support by the supplier; and

When necessary, details of the items are accessible and will be provided, upon request, to the appropriate authority in the exporter's country in order to ascertain compliance with conditions described in paragraphs (a) to (c) above.

(Prior classification by the Trade and Industry Department ("TID") is required to determine if the product meets the criteria in paragraph 5 (ii) above. Details please refer to paragraph 7 (d) (ii) below)

For details of the above exemptions, traders may refer to Notes 2 or 3 (also known as the Cryptography Note) under Category 5, Part 2 - Information Security of Schedule 1 to the Regulations. This part of legislation can also be found at our Strategic Commodities Control System Website (SC Website) at http://www.stc.tid.gov.hk/english/checkprod/cat5A002.htm.

Licensing Procedures for Paper Applications

(A) Application Forms

Licence applications for strategic commodities including encryption products should be made on Import Licence (Strategic Commodities) Application Form [TID 501 (Rev 2006)] (Annex A) (fillable pdf format) and Export Licence (Strategic Commodities) Application Form [TID 502 (Rev 2006)] (Annex B) (fillable pdf format) Note 1. These forms are free of charge and available at the Customer Service Counter of Strategic Trade Controls Branch at Room 516B on 5/F, Trade and Industry Department Tower. They can also be downloaded from the Strategic Commodities Control System Website ("SC Website") at http://www.stc.tid.gov.hk. Applicants are required to attach a copy of the technical specifications/data sheets for each application to enable the Classification Section of TID to confirm whether the goods are strategic commodities. Licence applications should be submitted to the Strategic Trade Controls Branch at Room 516B on 5/F, Trade and Industry Department Tower. A numbered receipt will be issued for each licence application. Approved import and export licences are valid for six months and three months respectively. Specimen of completed import and export licence applications are at Annexes C (pdf foramt) and D (pdf format) respectively.

(B) Declaration and Supporting Documents

In addition to basic application particulars, the following information/documents will also be required to support a licence application covering encryption products :

the name and full address of end-user;

the specific end-use of the goods concerned;

if the shipment is supported by an export/re-export authorization issued by the supplier (originating) country/place, essential details of the licence or licence exception; and

other supporting documents including -

a copy of the export licence issued by the supplier (originating) country/ place of the goods giving explicit approval to the export/re-export concerned. If the foreign export licence is written in languages other than English or Chinese, a translated version (either in English or Chinese) prepared by a registered translation company in Hong Kong or certified correct by the relevant embassy in Hong Kong will be essential to the processing of the case;

the technical specifications and/or the completed Cryptography Questionnaire (Annex E) (fillable pdf format). This questionnaire is for ascertaining whether the products can meet the criteria listed in paragraph 5(ii) and giving the general technical features of the products. Such documents should be submitted for every product unless pre-classification has been made;

Licensing Procedures for Electronic Applications

Companies can also apply licences electronically. The E-Application for import and export licences can be made through companies' E-Accounts in the Strategic Commodities Control System Website ("SC Website") under the program of "Apply for Import Licence" or "Apply for Export Licence" provided at the E-Application menu (At http://www.stc.tid.gov.hk > Login Your E-Account > E-Applications > Import/Export Licence Applications > Apply for Import/Export Licence). Same as paper applications, E-Applicants should download and complete all supporting documents in paragraph 7 (d) and afterwards, scan, upload and submit the duly completed forms together with the related E-Import/Export Licence Application. Alternatively, the supporting documents can be submitted to TID by person or by fax (2394 6515). As for all E-Applications, upon successful submission, E-Applicant should follow the instructions to print out by themselves the receipts for future collection of the approved licences. In this connection, applicants are reminded that the provision of scanned or faxed copy of the End-user Statements, Importer/End-user Statements and HKF5 Forms as required in paragraph 7 (d) (iii) to (v) above will only serve to facilitate TID in processing their applications more expeditiously. It is however not equivalent to the original signed copy of the End-user Statements, Importer/End-user Statements and HKF5 Forms which is/are required to be submitted to TID in all circumstances. Thus, after making the E-Application, applicants should make sure to deliver the original signed End-user Statements, Importer/End-user Statements and HKF5 Forms to TID as soon as possible. TID will withhold approval and issuance of licences unless and until the original End-user Statement(s)/ Importer/End-user Statement(s) /HKF5 Form(s) are received.

Issuance of Licence

If licence applications, regardless of paper or electronic, are approved, paper licences will be issued. Under normal circumstances, applications duly completed and supported by the documents required will be processed within 2.5 clear working days after the date of submission of the licence application. They are ready for collection at Room 516B, 5/F of Trade and Industry Department. Please refer to the Strategic Trade Controls Circular No. 4/04, "New Application Forms and Import and Export Licences of Strategic Commodities" for details regarding the new format of licences introduced in April 2004. For cases with complications or if additional technical details, other documents and information and/or clarifications are necessary, it may take longer time to process the applications. Applicants may check whether their applications have been processed and are ready for collection by visiting the SC website at http://www.stc.tid.gov.hk. In any event, applicants are advised to submit their applications well in advance of shipments. Application forms that are not properly completed or not accompanied by all the necessary documentation will be deferred/rejected.

Licence Conditions

On top of the standard licence conditions, the Director-General of Trade and Industry may, depend on the circumstances of individual cases, impose special and additional conditions on approved licences. At the time of receiving the licences, companies are advised to read the designated part, "Licence Conditions", for the imposition of both the standard and special conditions.

For encryption products, one very common special licence condition is that "Prior notice to and approval from the Department may be required if the goods are intended for further resale/transfer/disposal". Licensees imposed with this condition should be very careful in handling any subsequent resale/transfer/disposal of the goods covered by the licence. They should first submit to the Strategic Trade Controls Branch written applications made in the designated form SC047 (Annex J) (fillable pdf format). To facilitate TID's consideration on the applications, documents like original enduser-statement duly completed by the proposed end-user, copy of business registration certificate of the proposed recipient and end-user, valid export permit/authorization issued by the product's originating/exporting country (place) giving approval to the proposed resale/transfer etc. must also be submitted. TID will give due consideration on the application and notify the licensee in writing whether the request can be approved. Only that TID's written approval has been obtained should the licensee proceed with the resale/transfer/disposal of the goods. Otherwise, the licensee would be liable to breaching of the licence conditions.

Companies can also apply electronically for resale/transfer/disposal of strategic commodities provided that the relevant import licences are obtained through E-Applications. E-Application for resale/transfer/disposal can be made through companies' E-Accounts in the Strategic Commodities Control System Website ("SC Website") under the program of "Apply for Resale/Transfer/Disposal of Products Under Approved Import Licence" provided at the E-Application menu (At http://www.stc.tid.gov.hk > Login Your E-Account > E-Applications > Resale/Transfer/Disposal of Products Under Approved Import Licence > Apply for Resale/Transfer/Disposal of Products Under Approved Import Licence). Unlike paper applicant, E-Applicants for resale/transfer/disposal need not to wait for TID's written notification on the results of their applications. They could efficiently know it by checking the application status through their E-Accounts. And if the application is approved, the applicants can simply print out by themselves the approval status of the application as an evidence of TID's approval on the resale/transfer/disposal request. (At http://www.stc.tid.gov.hk > Login Your E-Account > E-Applications > Resale/Transfer/Disposal of Products Under Approved Import Licence > Check Previously Submitted Applications for Resale/Transfer/Disposal of Products Under Approved Import Licence).

Pre-classification Service

For applicants who frequently import or export the same types of encryption products, it is advisable for them to make use of our pre-classification service. In brief, traders will be advised of the control status of a product through this service. Applicants should download the pre-classification application form SC013 (Rev 2004) (fillable pdf format) from SC website, attach with corresponding technical specifications and where applicable, questionnaire(s) mentioned in paragraph 7(d)(ii) above. After pre-classification, the Department will assign a Pre-Classification Reference Number to the product concerned. By quoting this reference number on future licence applications covering the same goods, the requirement to submit the technical specification/data sheets is waived. For details of the pre-classification procedures, please refer to the relevant circular available in Room 516B of the Department or at the SC website at http://www.stc.tid.gov.hk/english/circular_pub/stc5_04.html .

Export Control of Originating/Supplier/Foreign Exporting Country (Place) on Encryption Products

Traders should note that the originating/supplier/foreign exporting country (place) of encryption products, especially if it is a member of the Wassenaar Arrangement Note 2, may impose export control over the products by ways of individual licence, general licences, licence exceptions or other mechanisms. Since it is the policy of Hong Kong to maintain a licensing system complementary to the export control arrangement of our trading partners, TID will only approve licences to cover shipments that are in full compliance with the export control regulations of the originating/supplier/foreign exporting country (place). To ascertain such compliance, licence applicants are required to provide additional supporting documents that can be but need not be confined to: the relevant government authorities' determination/ classification result indicating that the goods have been reviewed and classified to be eligible for export to the proposed destination(s)/end-user(s), individual export licence, the review request/notification submitted by the products' manufacturer to the relevant government authorities, manufacturer's certification letter etc..

For US-origin encryption products, traders should be aware that the US Department of Commerce (DoC) revises their control over encryption products from time to time. In addition to individual licences, US Licence Exception ENC might be applicable to certain products subject to prior authorization from the DoC. Exports of certain type of encryption goods to specific type of end-users or countries (places) might not require prior review. For details of the US' latest regulations, we would advise traders to consult their US exporters/manufacturers direct or to visit the relevant US Government's website at: http://www.bis.doc.gov. For an overview on Hong Kong's controls of US-origin strategic commodities, traders may refer to our circular No. 4/02.

Articles in Transit

For applications covering transit of encryption products through Hong Kong, in addition to the requirements set out in paragraph 7 above, applicants should :

submit import and export licence applications together to the Department; and

declare on the licence applications that the goods are in transit, state the transport mode and name of the vessel or flight number, and expected arrival and departure dates. For E-Applicants, tailor-made declaration for this purpose is available for selection at Part I "Preparation of Declaration Lists" of the E-Import Licence Application menu.

Exporters may also be required to provide a landing certificate or delivery verification certificate issued by the country (place) of destination to the Director-General of Trade and Industry within 12 weeks after the date of shipment.

End-use Controls

In addition to the control imposed on specific items as set out in Schedules 1 and 2 to the Regulations, traders are reminded that end-use control are imposed under Schedules 3 and 4 to the Regulations. The Regulations impose licensing requirement on articles specified in Schedule 3 to the Regulations (Annex K) (pdf format), or any technological document containing information relating to any such article:

if the importer/exporter knows that the article or document is intended or likely to be used in any activity related to nuclear, chemical or biological weapons or missiles capable of delivering them as specified in Schedule 4 to the Regulations (Annex L (pdf format) refers); or

if the importer/exporter has grounds for suspecting that the article or document may be used in any activity specified in Schedule 4.

Import and/or export licences are required if the end-use of the goods fall under (a) and/or (b) above.

Reminder

Section 6A of the Import and Export Ordinance stipulates that no person shall import or export any article specified in the Schedules to the Import and Export (Strategic Commodities) Regulations except under and in accordance with a licence issued by the Director-General of Trade and Industry. Any person who contravenes the provision commits an offence and is liable :

on summary conviction to a fine of HK$500,000 and to imprisonment for two years; and

on conviction on indictment to an unlimited fine and to imprisonment for seven years.

In addition to prosecution, the Department may impose administrative actions against these persons. Such administrative actions may involve but shall not necessarily be confined to, suspension of a licence, refusal to issue a licence, debarment of all licensing facilities, etc.

Enquiry

If you have any enquiry concerning licensing requirements for encryption products, please contact Miss Angel Sham at 2398 5639. For specific technical questions or matters concerning classification of the goods and the pre-classification service, please call the general enquiry desk of the Classification Section of Strategic Trade Controls Branch at 2398 5587. Enquiry could also be sent by fax to 2396 3070 or by email to stc@tid.gov.hk.